November 5, 2020
Yesterday, Pet Retail Brands announced plans to wind down all of Pet Valu's U.S. operations, while keeping its Canadian business intact. The Company expects to close all of its 358 Pet Valu locations in the United States, warehouses, and corporate office by the end of this process. Effective immediately, U.S. customers will no longer be able to place orders on Pet Valu's U.S. e-commerce site. The Company cited the severe, adverse impacts of the pandemic on its U.S. operations.The Company fell behind on omnichannel investments and these offerings have benefited online and pet specialty retailers during the pandemic, such as Chewy, PetSmart, and Petco. Click here to request a list of store closures.
In 3Q ended 9/30, Amazon continued to benefit from its position as the dominant online retailer, with sales rising 37% to $96.15 billion. By channel, online sales rose 38%, while physical store sales fell nearly 10%, likely due to an increasingly competitive environment, as rivals brought in new merchandise and offered deeper promotions. While sales growth was very strong, it is likely understated on a year-over-year basis, given that Prime Day was moved from 3Q into 4Q. Amazon Web Services (AWS) sales remained robust, growing 29% and comprising 12.1% of total sales. Amazon's gross margin slid 38 bps, as shipping costs jumped 57% and were 16% of sales. Operating margin of 6.4% was up 190 bps from last year.
In other news, Amazon is planning to launch its first fulfillment center in North Dakota in 2021. Located in Fargo, the one million-square-foot fulfillment center will pack and ship large items. Click here for a list of Amazon future openings.
In the J.C. Penney bankruptcy case, the Court granted conditional approval to an amended Disclosure Statement filed by the Debtors. This procedural step clears the way for the Debtors to solicit acceptances of the Plan of Reorganization. The Plan states that it is supported by “the Debtors, certain holders of claims, and certain consenting first lien lenders that have executed the Restructuring Support Agreement, including holders of at least 66 2/3% in principal amount outstanding of the first lien claims.” Holders of allowed administrative and 503(b)(9) claims are projected to be paid in full, while allowed general unsecured claims are expected to receive a recovery of less than 1% of their claims. The hearing to consider confirmation of the Plan is scheduled for November 24.
Separately, the Debtors provided notification that they entered into an agreement in principle on a global settlement with the Minority Group of First Lien Lenders (led by Aurelius Capital Management) and the Creditors’ Committee, which will resolve all objections to: (i) entry into the Asset Purchase Agreement with Simon Property Group and Brookfield Property Partners, and (ii) confirmation of the Chapter 11 Plan. The global settlement will be reflected in an agreement to be approved in connection with the proposed sale order. Aurelius Capital Management and other lenders that include Bank of America had opposed the proposed transaction, arguing that lenders led by H/2 Capital Partners LLC would benefit disproportionately. Additionally, the Debtors, Simon and Brookfield, and the Majority Lenders continue to finalize the Master Lease Agreement documentation to reflect issues that were previously resolved through mediation. In light of the foregoing, the Court entered an order postponing the sale hearing scheduled for yesterday to November 9.
On November 2, J.C. Penney said it also reached an agreement with the Unsecured Creditors’ committee that would address any of its objections to the sale. Click here to request a list of store closures.
Friendly's Restaurants, LLC filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware on November 2. The proceedings have been designated as case number 20-12807. In connection with the proceedings, the Company announced an agreement to sell substantially all of its assets to Amici Partners Group, LLC, "an entity comprised of experienced restaurant investors and operators who have been involved with quick-service restaurants and casual dining chains for more than 25 years." Amici is currently affiliated with BRIX Holdings, a multi-brand franchising company with national and international experience in the restaurant industry.
The Company said that nearly all of Friendly’s 50 corporate-owned and 80 franchised restaurant locations are expected to remain open, subject to COVID-19 limitations.
Friendly’s has requested a hearing in mid-December to approve the sale and confirm a Chapter 11 Plan, with the closing and plan taking effect concurrently as soon as possible thereafter. Upon the sale closing, Amici expects to retain substantially all employees at Friendly’s corporate-owned restaurant locations. Friendly’s said it has "sufficient cash on-hand to continue operations, meet its obligations to employees, franchisees, and vendors, and ensure a seamless transition."To request a list of future lease rejections, click here.
On October 27, Topgolf Entertainment entered into an all-stock merger deal with Callaway Golf, which previously owned 14% of the Company. The deal values Topgolf at about $2.50 billion (including about $555.0 million of net debt) and is expected to close in early 2021. Under the terms, Callaway will issue roughly 90 million shares of its common stock to the shareholders of Topgolf, excluding Callaway. After the merger, Callaway shareholders will own about 51.5% of the combined entity; Topgolf shareholders will own about 48.5%. Topgolf, which operates about 63 locations globally, generated revenues of $1.06 billion in 2019, EBITDA of $59.0 million (5.6% margin), and net loss of $115.0 million. The balance sheet was also highly leveraged, with $707.0 million of projected debt at December 31, 2020. The Company has grown at a 30% top-line CAGR since 2017.
The combined entity had pro forma revenue of about $2.80 billion based on FY19 results; it is expected to generate approximately $3.20 billion in revenue by 2022 and grow sales at about 10% annually in the years following. The combined entity’s pro forma EBITDA totaled about $270.0 million based on FY19 results, and is expected to reach $360.0 million by 2022, and grow at mid to high teens in the years following. The combined entity’s estimated revenue mix will consist of Golf Equipment (30% of net sales), Topgolf (46% of net sales), and Softgoods (24% of net sales). As of 3Q20-end, Callaway had ample liquidity of more than $630.0 million, which should help fund Topgolf’s continued growth and help pay down debt. For its 3Q20, Callaway reported a 12% increase in sales to $476.0 million and a 53% increase in EBITDA to $87.0 million (18.3% margin). Click here to request a list of future store openings.
Publix announced it will expand its distribution center in Greensboro, NC, to include a dry grocery warehouse, which will add more than 1.2 million square feet of space. In February 2020, Publix broke ground on the first phase of the facility, a 940,000 square-foot refrigerated warehouse, currently under construction. The entire distribution center is expected to be completed by the fourth quarter of 2022, three years ahead of schedule. The Greensboro location represents Publix’s 10th DC and its farthest North location.
Publix’s 3Q (ended 9/26) sales increased 18.3% to $11.10 billion, driven by comp growth of 16.5%. The Company estimates sales increased $1.25 billion or 13.4% due to the impact of the coronavirus pandemic. Net earnings were $917.6 million, compared to $574.0 million in 2019. During the YTD period, 21 supermarkets were opened (including five replacement supermarkets) and 104 supermarkets were remodeled. Nine supermarkets were closed during the period.
Effective November 1, Publix’s stock price increased from $54.35 per share to $57.95 per share. Publix stock is not publicly traded and is made available for sale only to current Publix associates and members of its board of directors. Click here to request a list of future store openings and closings.
Dunkin Brands agreed to an $11.30 billion takeover from private equity group Inspire Brands. Inspire Brands, which runs a portfolio of around 11,000 restaurants around the world, including Arby's, Sonic, and Buffalo Wild Wings, said Friday that it will pay $106.50 per share for Dunkin' Brands. The purchase price represents a 30% premium to Dunkin's share price on October 23, when news of the deal was first reported.
Amazon’s Whole Foods continues to expand on Long Island, NY with the opening of a new 57,000 square-foot store in Westbury, NY (Long Island) on November 5. A 38,500 square-foot Whole Foods is expected to open in Massapequa in the fall of 2021. The Company operates four existing stores on Long Island that range from 20,000 square feet to 47,500 square feet. Click here to request a list of future store openings and closings.
Brookshire Brothers is investing more than $2.0 million to renovate its store in Katy, TX.Renovations are already underway, including major updates to the storefront, new paint and décor, construction of a new in-store coffee shop, updated restrooms, and new refrigerated cases.The store will continue to serve customers during the remodel, which is planned to be completed in December. Click here to request a list of future store openings.
Walmart is converting four of its stores into laboratories that test ways to turn the Company’s huge physical footprint into increased e-commerce offerings. At the stores, employees will use digital tools, store design features and different strategies that could speed up restocking shelves and fulfilling online orders. Walmart has seen more of its sales shift online during the coronavirus pandemic. Walmart’s e-commerce sales nearly doubled in 2Q ended July 31. Even before the pandemic Walmart had begun making moves to align its online and e-commerce strategies, such as merging separate teams of buyers.Click here to request a list of future openings and closings.
Home Depot signed a lease to move into a former Bed Bath & Beyond store on Manhattan’s Upper East Side, a 120,000 square-foot unit that spans four floors. Bed Bath & Beyond’s lease expires next year; the Company announced it would close the location by December as part of its plans to shutter about 200 stores nationwide. Home Depot will pay roughly double the rent amount that Bed Bath & Beyond was paying, according to a person familiar with the deal. Though financial terms were not provided, the deal marks one of the largest retail leases, by size and total annual rent, in Manhattan in recent years. Home Depot currently has two locations in New York City, one each in the Flatiron District and Midtown, though published reports claim the Midtown store is expected to close and move to a bigger location a few blocks away.
Walmart de México (Walmex) will open stores under a new Walmart Express brand beginning this month, and gradually convert all existing Superama grocery stores to the format. This concept will have different forms of sale, either in person or through online purchases and applications, via WhatsApp, home delivery, or the “Pickup” service. The Company said that in addition to the conversion of the Superama stores, it will also be opening new stores from November 2020, which will be located in strategic points in the country, "to reach new spaces where there is no presence with current formats."
On October 30, Carrefour announced the disposal of a 60% stake in its Market Pay payments platform to AnaCap Financial Partners, a specialist investor in European financial services. This all-cash transaction values Market Pay at €300.0 million. The transaction is expected to close in 1H21.
The Company also announced it is acquiring the French bankrupt specialty distributor Bio c'Bon for €60.0 million (US$69.79 million), as part of plans to focus more on organic food. The Bio c’Bon network of about 115 stores in France strengthens Carrefour organic focus following its acquisition of So.bio in April 2019 and BioAzur in October 2020.
In the Town Sports International bankruptcy case, the Debtors notified the Court that they did not receive any qualified bids by the bid deadline, other than that of stalking horse bidder (and DIP lender) Tacit Capital, LLC. Consequently, the auction was cancelled. The stalking horse purchase agreement provides that consideration includes a credit bid of $80.0 million and the assumption of certain liabilities.
Rubio's Restaurants, Inc. filed a prepackaged Chapter 11 petition. The Debtors operate and franchise 167 restaurants in California, Arizona, and Nevada under the Rubio’s Coastal Grill concept. Between May and June 2020, the Debtors permanently closed 26 stores due to the pandemic and filed a motion to reject leases on the closed stores. Golub Capital (the prepetition lender) agreed to provide an $8.0 million DIP Facility, and Mill Road Capital (the Company’s private equity sponsor) has agreed to provide an additional $6.0 million of equity financing. The Company filed a Plan of Reorganization, which provides for an exchange of debt for equity in the reorganized entity. Additionally, the Company is requesting full forgiveness of a $10.0 million loan from the Paycheck Protection Program. Click here to request a list of closures.
Wendy’s largest franchisee, NPC International, DIP previously filed for chapter 11 bankruptcy in July 2020, and is in the process of selling some or all of its 393 Wendy’s restaurants across eight different markets. Currently, all of these restaurants remain open, and NPC has remained current on its continuing obligations to the Company. Wendy’s management indicated that it is evaluating whether or not to submit a consortium bid with a group of pre-qualified franchisees to acquire those 393 restaurants. Franchisees would acquire the majority of the restaurants, as management remains committed to maintaining an approximately 95% franchised rate.
On October 28, H.E. Butt opened its first store in Lubbock, TX. The 122,000 square-foot store is part of H.E. Butt’s continued expansion into West Texas, where it has eight stores. Also, as part of this project, the Company built 13,000 square feet of additional retail space on the property, which will be separate from the store. A few tenants include Twin Liquors, Great Clips, Castle Nail Salon and Hibachi Express. Click here to request a list of future openings.
Bed Bath & Beyond (BBBY) announced a three-year plan, which includes deeper investments in its omnichannel strategy to drive long-term sales and margin growth. The Company will focus on providing a clear value proposition (including updated loyalty program), curated product assortment, increased consumer relevance and mindshare, leveraging its stores as an omni-asset, and optimizing the cost structure and store base. As part of the plan, BBBY will invest $250.0 million to remodel 450 stores, which represent 60% of sales, and expects to see a sales lift of 4% in those locations. The Company is also growing its buybuy Baby store footprint and aims to increase those sales by 50% to $1.50 billion by 2023. BBBY will also spend $250.0 million in the next three years to update its supply chain and distribution network, and another $250.0 million to drive modernization and reinvention of its technology platform. The Company concurrently announced an accelerated $225.0 million share repurchase authorization, as part of its plan to buy back up to $675.0 million of its shares in the next three years.
The Company’s FY23 targets include:
- Same-store sales growth in the low-mid single digits
- Gross margin of 38% or more
- EBITDA of $850.0 million to $1.00 billion
- EBITDA margin of high-single to low double digits
- Gross debt/EBITDA ratio <3.0x
Click here to request a list of store closures.
Saladworks plans to expand throughout Pennsylvania and New Jersey in the coming months. With dozens of locations already in these core markets, Saladworks hopes to develop more New Jersey locations in Phillipsburg, Flemington, Ewing Township, Princeton, South Brunswick, Burlington Township, and East Windsor, along with Pennsylvania locations in Trexlertown, Quakertown, Royersford, Fort Washington, Media and Springfield. Saladworks is actively seeking qualified franchise partners. Thus far in 2020, Saladworks has grown by 28 units, with a few more set to open this year; it has over 20 new deals in the pipeline for next year. The Company currently operates over 100 locations across 18 states.
On October 29, LVMH and Tiffany & Co. announced that they have agreed on a new purchase price of $131.50 per share in cash for the acquisition of Tiffany by LVMH. The new deal values Tiffany at $15.80 billion, $400.0 million less than the $16.20 billion originally agreed to. Other key terms of the agreement remain unchanged. Tiffany and LVMH have also agreed to settle pending litigation. The merger is expected to close in early 2021, subject to Tiffany shareholder approval and customary closing conditions.
Leslie’s Poolmart, a retailer of swimming pool supplies that operates nearly 1,000 locations domestically, announced the pricing of its initial public offering of 40 million common shares at $17 per share, under the ticker symbol LESL. Shares surged almost 30% at the beginning of trading on October 29. The Company expects to receive $465.0 million in net proceeds and plans to use the cash to pay down some of its $1.20 billion debt load (details below). The IPO comes amid a recent surge in demand for pool products due to the pandemic and a shift in consumer spending on homes. The Company’s sales for the TTM period ended June 27 were up 12.7% over the prior-year period, to $1.03 billion, with comps up 11.5%. Management-adjusted EBITDA for the same period increased 15.1% to $174.3 million (17.4% EBITDA margin). Pool Corporation, a publicly traded competitor, has experienced a more than 100% increase in its stock price since mid-March, as a result of the strong demand within the industry since the onset of the pandemic.
Leslie’s plans to use proceeds to fully pay down its $390.0 million of outstanding Senior Unsecured Notes due 2024. The remaining proceeds will be used to partially pay down its $815.0 million outstanding term loan due 2023. The Company also has an undrawn $200.0 million ABL facility due August 2025.
CEC Entertainment, Inc. filed an amended Disclosure Statement and Plan of Reorganization. The Disclosure Statement indicates that the Debtors abandoned a plan to sell their assets to a third party, due to an inability to generate qualified bids in excess of the $875.0 million minimum set by the Company’s lenders. Instead, the proposed restructuring contemplates a debt-for-equity exchange (or similar transaction) with the lenders. The Plan provides for an exit facility comprised of a $200.0 million first lien, first out term loan, which is subject to an increase to repay claims under the DIP Facility and fund the liquidity requirements of the Reorganized Debtors. A hearing to consider approval of the Disclosure Statement is set for November 4; a date for the confirmation hearing has not yet been set. Click here to request a list of closures.
Corner Bakery Cafe has been acquired by Pandya Restaurant Growth Brands, LLC (PRGB), from affiliates of private equity firm Roark Capital Partners. Terms of the transaction were not disclosed. PRGB is part of the Rohan Group of Companies, owned by the real estate investor and restaurant operator, Jignesh (Jay) Pandya. Corner Bakery Cafe is a fast-casual restaurant with a presence in 23 states and Washington, D.C. Corner Bakery Café restaurants are owned and operated by CBC Restaurant Corp. with nearly 200 Company-owned and franchised locations around the U.S.
In the Tailored Brands bankruptcy case, the Debtors filed a motion to reject five additional leases, in Beachwood and Columbus, OH; North Bethesda, MD; Virginia Beach, VA; and Saddle Brook, NJ. Click here to request a list of store closures.